Is RFID dead? Definitely not!

The history of RFID in logistics has been brief but tumultuous. The technology was thrust into the spotlight in 2003, when Wal-Mart and the U.S. Department of Defense issued their now-famous supplier mandates. At the time, RFID was hailed as an innovation that would transform the supply chain world and make out-of-stock problems a thing of the past. Within a few years, however, the hype had died down and some critics had begun to dismiss RFID as an oversold, overpriced version of the bar code.

So how have things really worked out? Has the RFID revolution gotten off the ground? How widely is the technology being used in logistics operations today? These are not easy questions to answer. While there's plenty of anecdotal evidence indicating that shippers and service providers have tried the tags on all manner of products with varying degrees of success, research on the actual implementations has been limited, making it tough to gauge the true extent of RFID adoption.

To get some answers, DC Velocity, Baylor University, and Bryant University surveyed the magazine's readers on their use of RFID in logistics and supply chain operations. The online survey, which was conducted in August and September of 2010, was completed by 175 respondents. One-third (33 percent) of those respondents said they worked in warehousing or distribution, and nearly the same percentage (32 percent) worked for manufacturers. The remainder worked in the third-party logistics services sector (14 percent), merchandising/retail (10 percent), material handling (6 percent), and transportation services (5 percent). Respondents' main areas of responsibility were warehouse operations (39 percent) and logistics management (33 percent).

The survey queried them about their use of RFID—whether they've deployed it and if they have, how they're using it, why they're using it, what barriers they've encountered, and what benefits they've gained (or hope to gain). What follows is a brief look at some of our findings.

Far from dead
Perhaps the most notable finding of our research was the indisputable evidence that reports of RFID's death have been greatly exaggerated. Nearly one-third of the survey respondents are already using, piloting, or in the midst of implementing RFID technologies in their logistics operations. Another 27 percent are considering implementing RFID in the next two years. That leaves a little more than 40 percent who are not using the technology or planning an RFID implementation in the near future.

While it's clear that RFID is far from a failed technology, it has yet to effect the sweeping supply chain transformations envisioned back in 2003. Our study suggests that this may be partly because users are deploying the technology a bit differently than originally expected.

For example, Wal-Mart intended to use RFID to automate inventory replenishment systems by tracking cases and pallets, while the Department of Defense (DOD) sought to track pallets and high-value parts at the unit level. The overarching objective in both cases was to improve overall supply chain performance.

Those goals have not been abandoned, but our study revealed that many users are implementing RFID with other aims in mind. Rather than focusing on streamlining overall supply chain performance, they're primarily using RFID to streamline and improve their **ital{internal} operations. Indeed, 59 percent of the survey respondents who already have some sort of RFID experience are focusing their implementations on internal improvements. Sixteen percent of them said that they view RFID implementation as a tactical move to improve efficiencies of specific processes within the company, and 43 percent see it as a strategic move to improve efficiencies of multiple, connected processes within the company. Meanwhile, only 27 percent consider it to be a strategic move that involves using RFID across the entire supply chain.

The list of tasks respondents are carrying out with the aid of RFID supports the idea that most of these implementations are aimed at internal improvements. They include the following (in descending order based on the extent of implementation):

Streamlining and improving internal operations

Conducting inventory counts of items in storage

Monitoring inventory usage

Automating inventory replenishment

Locating parts or equipment within a facility

Tracking parts at the case/pallet/container level

Tracking equipment (pallets, carts, trailers, etc.)

Tracking parts at the individual unit level

Supporting supplier-buyer coordination

In some cases, though, implementations were mostly about meeting mandates. Fourteen percent of the respondents who are currently using RFID said their company's management viewed their implementations as "reactive"—that is, driven by a trading partner's request or demand.

Benefits of RFID implementation
What did respondents who have experience with RFID (or plan to implement it soon) see as the main benefits? In terms of general categories, improvements in productivity and customer service were ranked highest, followed by communication and asset management. As far as specific operational benefits, "tracking of supply" came out on top in the rankings, with 85 percent of the respondents indicating they expected to see moderate to strong benefits from the use of RFID for tracking. Also highly ranked: reductions in fulfillment errors, improvements in the efficiency of order delivery/fulfillment, improvements in customer order tracking, and higher levels of customer satisfaction with the delivery fulfillment processes and outcomes. Respondents also said that RFID has enhanced the accuracy and availability of information in the supply chain, resulting in better inventory visibility, better visibility into supply chain processes, improvements in productivity, and reductions in operating costs.

One of our most interesting findings regarding benefits can be seen in Exhibit 1, which shows how respondents' perceptions of the potential benefits vary depending upon where they stand on the implementation continuum. Survey participants were asked to indicate, on a scale from "weak" to "strong," the level of benefit their company "may receive" from implementing RFID. Their answers showed that respondents whose companies are piloting the technology have higher expectations of the potential benefits of RFID than those who are in the process of implementing it or have already implemented it. As the chart shows, expectations in all four categories decline once a company gets past the pilot stage and moves into actual implementation.

Barriers to adoption
For all the benefits users have seen from tagging, it's clear that the RFID revolution is still in its early stages. What's holding companies back? According to the survey respondents, the primary barrier is cost (see Exhibit 2). This was no surprise, considering the high initial investment required to implement a comprehensive, cross-functional RFID system and the continuing concerns about return on investment (ROI). Other barriers included a lack of understanding of what RFID is (and is not), followed by technical issues and privacy/security concerns.

Once again, a respondent's implementation status affects his or her perception of the barriers' significance. In general, the more experience companies have with RFID, the less weight they're inclined to give those barriers. The exception is technical and privacy/security concerns in the piloting phase. We surmise that as users begin to work directly with RFID systems, they encounter unexpected technology problems, and data integrity issues become more important.

The good news is that as respondents moved from the piloting stage to completed implementations, their attitude toward the barriers began to change, with the obstacles taking on diminished significance. This indicates that organizations are able to overcome RFID-related problems and resolve any issues that arise during the pilot phase.

Take it slow
Perhaps the main takeaway from the study is that while plenty of barriers remain, companies are still forging ahead with RFID implementations and, perhaps more importantly, are finding these initiatives to be worthwhile. This is a significant change in perception from what we saw in our earlier studies, which found that respondents were unable to determine a business case or an ROI for RFID.

Furthermore, our research indicates that there is significant optimism regarding RFID implementation. Respondents who are already involved in RFID made it clear that the benefits to be gained from implementing this technology outweigh the obstacles and concerns. As an organization gains experience with RFID and moves into the pilot stage, the perception of benefits dramatically rises and the barriers start to seem less significant.

The key to a successful RFID implementation, according to many of our survey respondents, is to be selective about where it's used. While it may be tempting to jump in with both feet and try to implement it across the board, they say, companies would be better off identifying business processes that affect customer satisfaction and starting there.

Advice from the trenches

Thinking about implementing RFID in your own operations? Here's some practical advice from respondents who've been through the process.

"If you don't understand your input and output, you won't get accurate measurements. Be careful not to measure in too much detail. Step back from the problem and reconsider what information you really need."

"The important thing to understand is that RFID is not merely a bar code substitute, but a way to transform your products into wireless, identified objects. The benefits are just becoming known, and like the Internet, we can't predict how it will revolutionize our lives."

"Determine the greatest business needs that can be addressed by using RFID before recommending it as the solution to every problem. And be sure to consider the entire supply chain when calculating ROI."

"Implement RFID for the purpose of making a process improvement—use it to implement change. Conduct strategic communications and change management both internally and externally. Consider employing a trusted consulting firm that is 'product agnostic' to help you decide what you need and to assist with communications and change management."

"Use an integrator for the first implementation, then bring it in house. Beware of pure-play vendor-led RFID discussions (i.e., only talking to a reader vendor when you need tags, portals, PLC interfacing, etc.). ... To do them right, most jobs should be a hybrid of many different technologies (active, passive, LF, HF, UHF, access control, mobile, etc.). The focus should be on the business problem you are trying to solve. Find a partner that knows the 'physics of RFID' and can perform implementations as well as talk about operations and infrastructure."

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